Learning to See Demand

Just how old is the information you are acting on today? How many days ago was the order triggered that you are now producing? And how many days ago did the customer ring up about the problem you are now fixing?  I recently come across two striking examples where the delays in passing  the information upstream were substantially longer than the time it took  to make and ship the product or to solve the customers’ problem. As we  streamline our physical processes so we expose the many problems in our  information processes.  

Even with today’s pervasive data processing and communications the  information process is as gummed up as it has ever been. Mapping your  information flow will reveal a spaghetti diagram far worse than the shop  floor! And one thing we know about information is that the older it is the  less useful and even misleading it becomes.

What we do not see as clearly is that these delays cost money and really  frustrate our customers. We (and they) are paying for the extra buffer  stocks and the excess capacity you have to keep, for the time your managers and staff spend expediting and chasing and for the lost sales and discounts to clear unwanted products.

What we also do not recognise is that it obscures our view of true customer demand and is the biggest obstacle to dropping the gains from lean to the bottom line. We kid ourselves that we can make progress with lean while ignoring the need to redesign the information flow from our customers and within our own organisation.

The knee jerk reaction is to buy a new IT system. Many who have been through the pain of installing a new ERP system know this is not necessarily the answer! Lean thinkers start by asking some fundamental questions about the current process before deciding what IT support is needed.

A good starting point is to really understand your demand – to learn to distinguish between “actual” demand, “created” demand and “failure” demand (which we will return to in the future). At each link in the chain towards your final customer you ought to be able to identify what they actually needed to solve their problem or to fulfil orders from their customers. Compare this with the orders they sent upstream to you and you will see big discrepancy – the sign all clearly contains a lot more noise than the pure “actual” demand signal. 

Toyota calls this “created” demand and it has many causes. Some of it might be caused by your customer using up spare cash at the end of a budgeting period and some may be caused by your marketing staff offering discounts to make their numbers. But most of the noise is created by all the batching, delays and handoffs in the information flow between the customers’ point of use and your point of production. This will be amplified by pervasive errors in your data and the just-in-case factors built into the algorithms in your software. And the noise is even worse if your product passes through several warehouses before reaching your customer.

In other words this noise is mostly due to the way the information system works and not because customer use of your product is inherently volatile. In other words it is something we can do something about - we do not have to take chaotic demand signals for granted! 

The lean thinkers answer is not big centralised systems designed to optimise each activity in isolation – production, transport, distribution etc. Instead they separate production and shipping instructions from materials and capacity planning. They cut the number of decision points to one and replenish exactly what was sold frequently and often. This removes most of the signal noise and optimises the flow of the whole system rather than each operation. And it is simple and foolproof and any deviations can be spotted and responded to as they happen. 

This is exactly what Toyota does all the way up their parts distribution system. After many years work Tesco and some of their suppliers are also close to triggering production and shipping in response to continuous, real time data from their sales tills. 

Yours sincerely
Professor Daniel T Jones

Beyond the Lean Tool Box

Returning from a visit to Germany I was struck how far ahead we are in the UK. There is now little argument that lean is the way forward and most large manufacturers in the UK and the USA are now running a lean initiatives. In Germany the auto industry is still reeling from wasted years trying to grow by acquisition and to compete by stuffing their cars with every conceivable technology. Neither worked.

Indeed Daimler Chrysler is now trying desperately to simplify the technology in the next generation vehicles and it’s chairman recently warned that Toyota was about to make another assault on the European market. They now recognise that Toyota’s brilliant processes have given it a decisive edge in world markets and that it is the benchmark they need to follow.

We have lived with Toyota in our midst for well over a decade and there is a growing pool of people with hands on experience of TPS in the UK. Add to this the success of the Manufacturing Advisory Service in alerting smaller manufacturers to lean and you have a good foundation for increased competitiveness in the UK. However there is no room for complacency – we now need to step up a gear in implementing lean.

Going round the UK I still find that most of the lean initiatives are led from the bottom up by operations people. And most of the training courses run by in-company Lean Academies are still about lean tools. Almost all the focus is on the shop floor – when many of the impediments to lean are now to be found in the support processes in the office. While I see lots of current state value stream maps, there are too few future state maps with Value Stream Plans to implement them. I have not yet seen Value Stream Plans, rather than departmental budgets, being used as the key building block for allocating resources in the business as a whole. 

In my view lean now needs to be led from the top and driven by business objectives enshrined in Value Stream Plans for every primary and supporting process in the organisation. The in-house Lean Academies ought to be teaching product line (or value stream) managers a second layer of knowledge about how to reconfigure the entire order-to-delivery-to-cash system for every product line and how to redesign the next generation product and process in the light of the lean lessons learnt. 

System and Flow Kaizen starts by asking the right questions of the current state revealed in the value stream map, in order to design a future state. The objective is to see what has to be done to be able to produce exactly in line with customer demand and to trigger production on the basis of levelled demand directly from the customer’s point of use. This in turn depends on choosing the right place to locate the pacemaker process with the right amount of standard inventory. This in turn depends on achieving operational stability (capability, availability and flexibility) in each step in the process. When this is assured you can combine operations into cells and pull just what you need from every upstream step. 

Only by asking these system level questions can you drive actions and select the right tools to get you closer to a Toyota-level future state. This is also the only way to be able to disconnect your MRP system as a production instruction tool, keeping it only for capacity and materials planning as demand trends change.

Once the Value Stream Plans are in place it becomes clear what level of resources are required to achieve them from across the business – from production control, operations, engineering, maintenance, material handling, logistics, purchasing, finance, human resources and the lean romotion office. It is top management’s job to lead a policy deployment process to prioritise the resources to implement the Value Stream Plans and to align them with the overall needs of the business.

We may have been talking about lean a lot longer than the German manufacturers. However they are now in deeper economic trouble than we are and the rise of Toyota in Europe will erode their remium price position in the car market. They are beginning to realise drastic action is called for. We can not rest on our laurels. It is time to move beyond lean as a box of tools and Point Kaizen to the next level of lean – to Flow and System Kaizen. We now have the complete set of action learning workbooks (and workshops) to teach System Kaizen in production. This is what every company spiring to be lean should be doing and teaching right now. 

Yours sincerely
Professor Daniel T Jones

How Lean Are You?

I am often asked, how does a company know how lean they are? My answer is always, not by looking over your shoulder at your competitors or by counting the number of Kaizen events you have run. Instead ask yourselves seven basic questions.

The first uncomfmtable question is how much you disappoint your customers? How many quality defects and missed and incomplete deliveries occurred recently? How often did you ship too early to make your numbers and offload your inventories on your customers? Near zero defects and deliveries are not only possible, they are now expected. It is almost impossible to achieve 100% correct and on time when you are still doing lots of rework, holding mountains of finished goods and relying on expedited shipments to get you out of trouble.

The second question is what has happened to your door-to-door throughput time and inventories? Have they been falling steadily since you began your lean initiative? Have they led to falling unit costs? If not then you are not doing lean!

The scale of the oppmtunity is revealed by comparing the few minutes of value creating time with the days or weeks it takes for products to travel through your plant. After an initial honeymoon when you discover lots of low hanging waste, fmther progress depends on reconfiguring both your production process and the incoming order and scheduling process that triggers it.

The oppmtunities for action are revealed by mapping your processes and calculating the standard inventmy at each point. Standard inventmy comprises the Cycle Stock to meet average demand (batch size and lead time), the Buffer Stock to meet fluctuations in customer orders (demand volatility and forecast errors) and the Safety Stock to cover you against upstream failures (availability and quality losses).

The third question is what are you doing to lean your production and scheduling processes? Do you level orders? In other words do you have a harbour wall to protect your internal operations from ocean storms, whether self-inflicted or created by your customers? Do you pass these levelled orders on regularly and frequently to one pacemaker process? Depending on whether you ship finished goods from your pacemaker or build to order from a pacemaker located fmther upstream, is everything upstream from the pacemaker pulled from it, including from your key suppliers? Downstream, does the product flow directly to the customer's point of use without being waylaid in several warehouses? If the answers are no, then you need to map your processes and learn how to reconfigure them using lean principles.

The fourth question is whether you are using lean to improve your office processes and cut overheads as well as direct costs? Firms are just wa king up to the potential for redesigning every office process using lean principles.

The fifth question is how are you planning to use the freed up time, equipment and space from your lean activities? The real oppmtunity from going lean is to be able to do considerably more work with the same resources at almost no additional cost. What will it take to generate this extra work? Or how are you going to handle the need to reduce headcount without bringing your lean efforts to a halt?

The sixth question is whether you have the management systems in place for a lean transformation? Is top managements' heart really into leading this? Is someone responsible for reconfiguring each product value stream through your facility? Is there are an active policy deployment process based on these value stream plans to prioritise and resource them? Is there a common language across the whole organisation for seeing processes and for root-cause problem solving?

The final question relates to the biggest opportunity of all - the future. What would you have to do to deliver the next generation product with enhanced functionality at 30% lower costs than your cunent product? This is what Toyota is cunently targeting their Chief Engineers! Usingyour lean experience, how could you redesign the next generation product to remove unnecessary operations? What new technologies and equipment would be required and which new suppliers? Maybe it is time to make this the end goal of your lean transformation.

Yours sincerely
Professor Daniel T Jones

Lean Allies in the Office

Everywhere I go it is increasingly obvious that lean cannot progress in operations alone. Once you begin to straighten out your physical flows you have to involve all the supporting processes in the offices. You need a production control system that can pass levelled orders quickly to your pacemaker process and on to your suppliers, a process that can collect and pay bills on time and a recruitment process that can get the right people in time, etc. etc.

The good news is that these processes are often more broken than operations and the gains from straightening them using lean principles are even greater. This is not surprising because they have subject to less detailed analysis than operations, they typically operate in batch and queue mode and the process is not very visible. It is easy to hide waste and to resist standard work.

However getting the offices involved can also be a very powerful way of capturing the attention of top management. Everywhere operations complain that top management pays too little attention to their lean improvement activities. They are always fighting for attention and support.

This route to attracting top management support was brought home to me during a visit to review a lean manufacturing programme in a large multi- national firm. After a day listening to very good, but frankly rather tedious reports about progress being made in plants across the world, the meeting finally came to life when someone from corporate office described some pilot lean projects they were doing in their centralised office support functions.

He told a stunning story about how an office team, with some expert help, had transformed the process for paying suppliers. Now incoming invoices were more accurate, payment approval was quicker and on time and they were no longer getting any calls from irate managers whose plant was about to be shut down because a supplier had not been paid. This touched everyone in the room. It was a breath of fresh air!

However the real significance was that these lean office, pilot projects were being led by someone with a finance and strategy background. A background shared by most of their senior managers. By quantifying the gains from this pilot and extrapolating them across this rest of the corporation, with offices across the globe, he was easily able to get top managers to listen to his stories. Indeed they became so enthusiastic that they are already planning the systematic deployment of lean across every office function in the company – from sales and marketing to purchasing, from finance to human resources and from engineering to product development. 

His other very interesting comment, when asked how difficult it was to translate lean from the shop floor to the office was: “The more you learn to see the office process, the more it looks very similar to any other process.” Indeed the main differences are all about learning to see – to see who is the customer, what steps create value and where all the waste is hidden. Once you can see you can ask the right questions and build a business case for change. Only then do you reach for the right tools and create standard work etc. 

But mapping the office process is not enough. You also need to spend some time figuring out who the customers for this process really are and what they really want. What is their definition of value? In many cases it is that the process itself is invisible and they never have to worry about chasing it! So a key objective is to understand the difference between real demand and what might be called failure demand - all the staff time on both sides spent in chasing the broken process! 

One of the first gains from straightening out the office process is that you eliminate the causes for this failure demand. Because it is not supposed to happen the cost is hidden in overheads. The only place it is really visible is in the stress level of your staff! Eliminating failure demand allows them to happily get on with the job they should be doing. Maybe it is time to look for some allies to plant some lean seeds in your offices?

Yours sincerely

Professor Daniel T Jones

Lean Beyond Manufacturing

One of the strongest reasons for supporting manufacturing is because it is the prime source of leading edge management skills. Designing an aeroplane with millions of parts and assembling three thousand parts into an automobile every sixty seconds are still the some of the most complex management tasks in the economy. No surprise then that the retail industry and indeed our military have learnt how to manage complex logistics from manufacturing. And manufacturing and logistics also pose the biggest challenges to software systems designers.

Despite concerns about the offshore drift of manufacturing we still have some excellent examples of lean manufacturing on our doorstep. One of the best things the UK government has done in recent years is to encourage other manufacturers in the UK to learn and emulate their success. There is no doubt that the Manufacturing Advisory Service has triggered awareness of how lean can improve the competitiveness of many smaller firms. There is still a lot to be done, and it would be a great mistake not to continue to support it.

However it is equally true that no manufacturer is an island. Every one is part of several extended value streams reaching from raw materials through distribution to the end customer. Lean is about producing to customer demand, rather than to forecasts, right the way up the value stream, not just in each factory. Indeed the biggest challenge facing today ’ s manufacturers in no longer on the shop floor. It is in managing the orders up and down the value stream and streamlining all the processes in the office. Indeed in our experience the opportunities for improving office processes are even greater than on the shop floor.

In this regard manufacturing is no different from banks and insurance companies. It is therefore not surprising that financial services, healthcare, construction and even public services are all looking to manufacturing to lean about lean thinking. Yes, lean has to be modified to suit the peculiarities of each of these sectors, as it has to for different kinds of manufacturing - from autos and aerospace to food and pharmaceuticals to custom designed machinery. However the principles are the same, and many of the lessons about reconfiguring processes are too.

In this light maybe it is time to turn the Manufacturing Advisory Service into a Business Advisory Service, encouraging the spread of lean knowledge to all corners of the economy. You heard it here first! This might also go some way towards joined-up business support, rather than seeing MAS as a sop to keep lame-duck manufacturing happy.

To rise to this challenge, the excellent cadre of lean experts recruited by MAS will need to deepen and broaden their skills and experience. Spending time helping small firms get started down the lean path inevitable cramps their style and ends up focusing their efforts on applying tools as a wake up call to the true potential of lean.

Lean does not start with tools, but with the reasons for using them. It starts at a higher level by understanding real customer demand, not the amplified demand being passed up the value stream. And it entails fundamentally reconfiguring the physical flow of products through and beyond the plant. This takes real leadership and a systematic way to reorganise the information and product flows, plus all the supporting processes like production control, maintenance and training.

Toyota has been developing its Lean Business System for 50 years. It is time we all moved into third gear. And it is time for manufacturers to help spread lean across the rest of the economy, in their own interest! A prosperous and competitive economy, not just manufacturing, is the key to their survival and growth over the next decade.

Yours sincerely

Professor Daniel T Jones

The Beginner’s Guide to Lean

Toyota has just overtaken Ford as number two in the global motor industry. At the Tokyo motor show Toyota confirmed it intends to overtake General Motors to become number one by 2010. This has not been achieved through buying market share – far from it – Toyota is making record profits and could buy many of its competitors for cash.

A senior Toyota executive recently summarised the reason for their progress over the years. “Brilliant process management is our strategy. We get brilliant results from average people managing brilliant processes. We observe that our competitors often get average (or worse) results from brilliant people managing broken processes.” This just about sums up the real lean challenge: how to go beyond eliminating waste in broken processes to creating brilliant processes.

Toyota is now using this process advantage to introduce new hybrid engines that will redefine the core technology of the auto industry for the decades ahead. The rise of Toyota from nowhere fifty years ago to global leadership is a remarkable story that should make every industrialist stop and take notice. Why would you not want to be the Toyota for your industry? Creating solid revenue growth through the business cycle by creating real value for customers.

Learning from Others

How do you start creating brilliant processes in your organization? The first thing to do is to learn from the experiences of the lean movement over the last decade. Many began their lean journey by recognizing that only a small fraction of the steps we carry out actually create the value the customer is paying for. The rest is Muda – the Japanese word for waste. So they went on Muda hunts and initiated 5S programmes to clear everything unnecessary out of the way. What they uncover is lots of low hanging fruit.

At the same time firms discovered that it was possible to make dramatic changes to an area in a short space of time through Kaizen breakthrough exercises. After a roller-coaster ride during the 5 days, teams typically report big leaps in performance. This brakes the “we have always done it this way” log jam and gets things moving. It also shows that you do not need to spend a lot of money to make these changes. Kaizen is hard work and exhilarating and a great way to open minds to change. However on their own that they create islands of excellence – which if they are not linked together make little difference to the bottom line.

A Process Perspective

Learning to see waste and that rapid change is possible are however only preparatory steps for lean. The second thing to do is to learn to see your organization from a process perspective. Lean is a business system focused on managing processes and improving them by compressing time rather than keeping each of the assets busy. 

Every organization is a collection of several primary value cresting processes (design and production) and a host of supporting processes (such as finance and maintenance). A process is a sequence of steps that must be carried out in proper order to create value for the customer and managed as a whole and not separately. 

The best way to learn to see your processes is to take a product and follow its path from beginning to end – from order entry to delivery to the customer. Mapping what we call a value stream reveals how the current process operates today – not how it is supposed to operate. It also reveals all the wasted time and effort in the process. It is both a consciousness raising exercise for all those involved and a powerful diagnostic of how broken the current process is. 

Creating Flow and Pull

Value stream mapping is also a management tool to guide actions to create a future state. From it we can quickly see which steps are incapable of delivering quality products on time, which are not available when needed (because they are broken down), which are inflexible because of long changeovers and where the product has to queue to use a bottleneck process. Knowing this we can use quality tools to analyze the root causes of variance, productive maintenance tools to improve machine availability and set-up reduction to improve flexibility. In the longer term we might also replace bottleneck equipment with smaller right-sized tools.

However the object of improving the performance of each step is so we can begin to link them together so the order and the product can flow from value creating to value creating step without interruption. (Exactly the same logic applies to linking steps in the information flow.) In some cases we can physically co-locate steps into a continuous flow sequence – in a cell or line. In others, which operate at different speeds and maybe serve several product value streams – such as stamping – we may have to link them using a Kanban pull system. This only triggers small batches of products to be made when the upstream step needs them. 

Creating flow is half the story, linking the rate of flow to customer demand is the other half. For this we need to understand the rate and variability of demand for this product family. Then we can decide how much we can flex this flow and how much we need to buffer against demand fluctuations.

Having done this we can set the rate of production that will satisfy the rate of demand and we can level the workload on production. Furthermore as we have linked operations into a flow we can now trigger production at one pacemaker process instead of sending schedules to each operation. 

The first most important result of creating flow and leveled pull is to be able to respond more quickly, accurately and with significantly less effort and inventories to customer demand. Through a succession of future states we can approach the ideal, which is to be able to be able to make and ship tomorrow what was sold today for products made in volume. The second result is that by improving the capability of each step and linking them tightly together any slippage in the system will immediately become obvious, as the whole system grinds to a halt. Time compression is a powerful way of ensuring that the grass does not grow back when you back is turned. 

Managing the Value Stream

Creating flow and leveled pull for each product family value stream that flows through your organization will entail a lot of cooperation from different departments. Almost invariably no one person will be responsible for managing the entire product flow, only parts of it. Therefore it will be necessary to appoint a Value Stream Manager to lead the change for each product family. Initially this might be someone from within production. However as soon as we extend flow and pull to our upstream suppliers and downstream distributors and begin to use our lean experience to design the next generation product and process this will have to be someone with broader experience who can report directly to stop management. 

Together the value stream managers for each product family can assess the common problems with each process and can articulate the need for support from each function to solve it. They are actually the (internal) customers for each of the support processes, typically the responsibility of a different department. Instead of managing these departments solely by budgets and asset utilization we can now begin to manage them by how well they support the improvement of each value stream. 

The Lean Journey

It is clear that lean is a journey which requires stamina and perseverance. Toyota made the fundamental switch from managing assets to creating flow and pull internally by 1960 and a decade later began to help their first tier suppliers do the same. This cascaded to their second and third tier suppliers during the 1980s and into their parts distribution system in the 1990s. Having made this switch they have been refining their processes ever since. They still set very demanding improvement goals for each new product generation.

We are still on the threshold between managing assets and managing process flows. The changes that are required are in part a physical reconfiguration of our operations, but much more a change in consciousness and behavior by our employees and managers. This can only coma about by learning by doing and by working out your own answers for your own situation. It may be comforting to note that if you keep going down this path it will be very difficult for others to catch up. On the other hand if you are slow off the mark it might be difficult for you to survive! 

Yours sincerely

Professor Daniel T Jones

Meeting the Challenge from Turkey

I have just returned from three big gatherings of lean folks – the Manufacturing Live event in Telford, the AME conference in Toronto, Canada and the Lean Summit in Bursa, Turkey. All three had record numbers of people attending and it is clear that interest in lean is alive and growing everywhere. 

The biggest surprise was to see over 1,000 plant and company managers hungry to learn at the Turkish event. Jim Womack and I spoke at the first Lean Summit there five years ago. Turkey was then a closed economy dominated by a few big family groups who controlled everything, including the political system. Delegates came, but it was clear they did so because they had been told to do so by their bosses – and it was frankly an uphill struggle to interest them in lean!

Five years later the transformation is amazing. A new, popular government is busy reforming the political system and opening up the economy to foreign investment and competition. The rewards are coming quickly – Toyota and others are ramping up production very fast and exports are hitting new records each month. But most impressive of all was the interest and enthusiasm of the delegates – a new breed of well educated younger managers eager to do the right thing. Moreover the Lean Institute Turkey had wisely involved students from local universities in running the conference – and their interest was infectious – crowding round at each break asking really good questions. 

Turkey shows what can happen when a country opens up its economy and modernises its political system. Growing exports and domestic consumption lead to rising living standards and more stable politics. Even as they grow they know that they have maybe twenty good years before the next low wage economy in eastern Europe or the Middle East undercuts their current competitive advantage. 

Although China captures the headlines, competition from the likes of Turkey is equally significant for us in the next decade. China may be the right place to source price sensitive, commodity products with stable and predictable demand. However it makes more sense to source price sensitive products where rapid response is still important within Europe, in a place like Turkey. Their constraints are not their, in the main, modern plants or management, but the capability of their local supply base and the time it takes to get their goods to customers across Europe.

To compete with manufacturers in Turkey it is probably not enough to just squeeze waste out of your existing processes making existing products. It will also require a rethink of each product value stream to be able to make every product every day so you can ship them the day after. This involves real time feedback from end customer demand to trigger frequent, levelled production instructions to your pacemaker process and a much tighter synchronisation of material flows into and out of your plant. It also involves a significant compression of your supply base so they can make and ship to you every product every day, as outlined in Seeing the Whole. 

Beyond that we need to think hard about the Ideal State design of the next generation product, that simplifies the manufacturing task for the whole, much compressed, supply chain and is able to deliver the exact product into the hands of the end customer within a matter of hours. The speed and responsiveness of the value stream, not the amount of finished goods inventory waiting for customers, will be the critical dimensions of competition in the next decade. 

Yours sincerely

Professor Daniel T Jones